Jadestone Energy plc

Ladies and gentlemen, good morning, and thank you for joining this call to discuss the new financing arrangements, which we announced late yesterday, UK time. I'm Paul Blakely, Jade Stone's CEO, and I'm joined in Singapore today by our CFO, Birjit Dijkstra, and in London by Phil Corbett, Investor Relations Manager. In this call, we'll run through the presentation, which has been uploaded on our website, at www.jadestone-energy.com. It's on the investor relations section, or you can view it via the link on the webcast. And after that, let's open the call for a Q&A discussion. Slide two outlines our standard disclaimers, and in particular, the cautionary remarks regarding forward-looking statements and non-IFRS measures used in this presentation. And with that, we can get started, reflecting first that the announced financing arrangement may have taken some of you by surprise, but is the result of a series of events which we'll explain and which moved very quickly upon us and for which we needed to take fast and decisive action. On slide three now, I did want to just offer a brief reminder of the objectives of the business and highlight that this equity raise and standby debt facility, following closely on the announced reserves-based lending facility of up to $200 million, which together now establishes a full funding solution for all our currently planned activities going forwards and with the additional buffer of the standby debt. This funding covers the Akitara project in Indonesia, which remains on schedule, the drilling of infill wells in Malaysia due to commence in third quarter, and follows on from stag drilling late last year, three acquisitions recently closed, and with further opportunity emerging from our participating interest in the PNLP licenses in Malaysia. Moving to slide four. gives a reminder of how we're continuing to broaden the asset base of producing fields, which in turn places less reliance on Montara and events such as the recent extended shutdown that occurred there. With portfolio expansion in multiple jurisdictions and the addition of gas streams at Sinfaholm and Akatara, this increasing diversity provides far greater resilience for the business. Furthermore, we're also reducing concentration risk in assets with high decommissioning security and providing greater portfolio protection from volatility in commodity prices. Note that we continue to be very selective on what we invest in, seeking high returns and value in everything we do, and focusing M&A only where follow-on investment opportunity in the asset has been clearly identified and verified. It's this activity which can generate exceptional returns, such as drilling infill wells, for example, at Montara, Stagg, and in Malaysia, and concentrating on early cash-flowing activity, which leads to rapid paybacks. And now to slide five, where I'd like to put some background to the financing arrangements announced today, and then let Bert Jaap fill in the details. We're responding to an unusual set of circumstances, which, of course, originate from the extended shutdown at Montara, an isolated incident which has been fixed and with routine operations now restored. This incident occurred during a record cycle of investment comprising both organic capex overlaying with M&A activity, which, of course, included CWLH and Sinfohorm, There's added complexity due to the RBL debt capacity decreasing temporarily, a feature of RBL structures, and which triggers a partial repayment in early 24, reducing the borrowing base until ACATARA comes on stream, when it then returns to $200 million. There are many moving parts to this, which I'll leave to Bert Jaap. Suffice to say that this uncertainty has created a need with certain stakeholders to resolve it immediately rather than during the next several months as we had planned. In a very concentrated period, we have worked with Tyrus Capital, our largest shareholder, to put in place a financing package in two main components. The first is an equity underwrite facility of $50 million to ensure this amount was raised and which, given the earlier outcome that we've just announced, will no longer be required. The second element is a standby working capital facility, the headline terms of which are laid out on this slide. This provides a buffer with no intention to draw down, but in the event of reasonable worst-case downside scenarios is immediately available. This financing package underpins our growth as we look to increase production next year by 50% once ACATARA is on stream and without further acquisitions assumed. It provides funding certainty for our shareholders, and we're grateful for their support. Slide six really emphasizes what we've already discussed, but in a simpler graphic. the growth trajectory is clear, with follow-on options which could make this exceptional. Note the shift from a very limited asset base on the left to a much broader portfolio on the right, with further potential from a strategically targeted opportunity which should fit well within the borrowing base and the redevelopment of PNLP in Malaysia, as well as the potential for some movement in the Vietnam gas development. Overall, we firmly believe this financing initiative together with the RBL gives us a strong platform to take the business forwards, moving production beyond 20,000 BOEs per day and rising further into the future. This is a key inflection point for the business and the cash generation from the expanded production base is very accretive. And so with that introduction, I'll hand over to Bert Jaap to provide context around the financing package, some detail on the structure, and the business outlook that follows. Bert Jaap.

Thank you, Paul. Slide seven then. The projected growth and production that Paul just presented on the previous slide is the main driver for the operating cash flow growth forecast in the base case from around zero this year to around $160 million in 24 and around $190 million in 25. The forecasted operating cash flow is after G&A tax and working capital. The $120 million operating cash flow in 2022, which includes exceptional income of just below $20 million from last year's skewer insurance claims settlement, decreases to nil in 2023, mostly due to lower forecasted revenues by around $80 million, caused by lower oil price realizations across the three scenarios in this chart, relative to the $96 per barrel Brent average across our oil sales in 2022. On current assumptions, we also expect to lift 200 to 250,000 fewer barrels at Montara than last year, primarily reflecting that the first lifting of the year from Montara of around 250,000 barrels only occurred in recent weeks. The $160 million operating cash flow forecast for 24 is based on a $75 per barrel oil price, So the recovery in 24 is driven by 130 million growth in revenues from increased production with a full year of contribution and lifting from Ontara, the positive impact of the Penn Mall infill wells, and of course, the start of production from the Lemang gas field early in the second quarter of 2024. Then into 2025, operating cash flows projected to increase further to around $190 million, mostly due to the full year contribution of Lemang, which brings high margin production, and incremental production from the forecasted stag infill drilling campaign in the second half of the year. You may notice that the projections are not very sensitive to oil prices. This is due to two reasons. First, we're hedging oil volumes under the RBL from fourth quarter 23 to third quarter 25, so for two years, for 50% of our liquids production. Second, the portfolio also benefits from the natural hedge that Le Mans brings on fixed gas prices. These operating cash flow forecasts, combined with the impact of our record investment program in 2023, are the main drivers of converting our 2023 net debt position into a net cash position on the next page in 2025 in the base case. On slide eight, we show the history of the company's financial position and forecasted evolution of the company's net debt and cash, which illustrates that we are expecting a short-lived funding requirement to finance our operations and, more importantly, our record investment program. Under the stated assumptions, we project a return to a significant net cash position in 2025. Looking back, we see the resilience of Jadestone's operating model. In 2018, Jadestone was carrying an RBL for the purchase of Montara, which was quickly repaid across 2019. During COVID, the company took active measures and successfully managed to remain in a relatively constant net cash position. With the increase in oil prices from June 2021 to June 2022, the company showed its cash generation potential and arrived in the $160 million net cash position at the end of the first half of 2022. In the period from first half 2022 to year end 2023, Jade Stone moves from a net cash of $160 million to a net debt position of around $100 million. This $260 million variance over the period is mostly driven by the company's $300 million investment program. The main elements here are a total of $190 million CapEx with $70 million from the second half of 22 due to stack drilling and the LeManc project and $125 million CapEx for 23 in the midpoint of guidance mainly due to Lemang and the Malaysian Infra-Drilling this year. The other $110 million is acquisition-related and includes around $80 million for all the CWLH abandonment fund payments and the SIMP for home acquisition for around $30 million completed early in 2023. The total is leading to the forecasted net debt position at the end of this year at around $100 million, depending on the oil price scenario. Note that this net debt position is before the transaction amount yesterday, so following the successful equity raise and all else being equal, this net debt in the base case is projected to be around $50 million. Additionally, we expect to stay well within our RBL covenant of consolidated net debt of less than 3.5 times EBITDAX. During 2024, the company expects to reduce its net debt by around $65 million to a position of $35 million net debt at year-end, on a $75 per barrel oil price. This is driven by operating cash flow of around $160 million, as explained on the previous slide, partly offset by planned capex. This is most notably stag drilling and the last lemang expenditure, projected interest on the RBL and other. Into 2025, the net debt position is forecasted to improve further to a net cash position of around $120 million at year-end. This is again driven by the operating cash flow for 2025 of around $190 million, combined with significantly lower capex projected, leading to a forecasted free cash flow contribution of around $150 million to arrive at that net cash position of around $120 million at year-end 2025. Over to slide nine. First and foremost, we are very pleased with the recent closing of our RBL with four international banks for a total of $200 million. The facility represents a strategic stepping stone in support of Jade Stone's longer-term future. The banks regard us as responsible operator, likely taking a role in consolidating midlife assets in the region. AIM listed enhance transparency and governance to high standards, the unique competitive advantage in operatorship, especially in Australia, combined with additional regional growth options in Southeast Asia. The RBL forms a flexible tool in support of Jade Stone's growth. the company can use the RBL to fund its capital investment, and the RBL supports funding of acquisitions of producing assets. Simple Home, for example, generated more debt capacity than Jade Stone paid in cash consideration. This demonstrates that the deal was very attractive, but also shows how the RBL can support inorganic growth. The total debt capacity is established in biannual redeterminations and is initially $200 million. This capacity is projected to decrease to around $90 million at the start of the second quarter 2024. Early in the third quarter in 2024, following successful completion tests, Lemeng will be integrated in the borrowing base as producing asset, and the borrowing base increases again to $200 million. Until this happens, Lemeng's contribution is constrained at 40% of the total producing asset contribution. The RBL closed later than we planned due to the continued slippage in the restart and stabilization of Montara, which was required by the banks to be able to close the RBL. Montara restart and handover to operations occurred significantly later than we originally anticipated. Closing of the RBL with its final banking model occurred days before the annual report was due. The RBL was important in support of the going concern conclusion. In the run-up to closing of the RBL, oil prices had come down, which increased the forecasted liquidity shortfall in our final liquidity model. This liquidity shortfall was not unexpected, and management believed and still believe that we have mitigants to close this gap. I will explain in more detail on the next slide. However, executing these mitigants will take time for assessment, and some will involve working with our banks to obtain consent. work which could only start after closing of the RBL. This shortfall was stress tested in a downside oil price and a negatively impacted operating performance scenario. Although this downside scenario is a low probability event, the board took the decision to be proactive and raise financing now to safeguard the company's position for the future. The company prioritized equity over debt to avoid over leveraging the balance sheet. To ensure protection against the tested downside scenarios, which could potentially disrupt the company's growth plans, in addition to the $50 million equity raise, we have also put in place the up to $35 million working capital facility, which we don't expect to draw. This combined equity and debt funding, in addition to the existing RBL, puts the company on a solid footing and provides financial flexibility to bridge across the temporary availability shortfall into the fast-improving liquidity position following Le Mans first gas. Finally on hedging, the RBL facility requires that we hedge 50% of our liquids production over the Q4-23 to Q3-25 period. To date, around 64% of the required barrels have been hedged at a weighted average price of around $71 per barrel and at the assumed forward curve in the RBL banking model. We expect to finish the program in the coming weeks. Over to slide 10. The chart on this slide illustrates the debt availability over time from our current banking model. This banking model calculates present value of future cash flow using third party verified production profiles, reserves, OPEX, CAPEX, and ABEX estimates. The oil price currently used in the banking model is $67 per barrel for 23, $62 per barrel for 24, and $58 per barrel for later years. This is well below the current forward curve. This brings forecasted field abandonment in the banking model much closer than we anticipate as we look at field lifetime extending activities. A 33% discount is applied to the end result to arrive at the borrowing base. Going forward, the present value reduces with production and the abandonment timing coming closer, mostly for Montaro and Stagg, using the banking oil price deck. As referred to earlier, we have options to mitigate the dip in Q2 24, which I discussed on the earlier slide. As said, all need time to assess, and some need bank consent. Up to now, our priority was signing and closing the RBL first. Measures to manage the liquidity dip which mostly stem from the decrease in the borrowing base in 2Q24, are the following. Acquisition of producing assets has the potential to bring incremental borrowing base. As mentioned earlier, our recent acquisition of Simpelhorn was more than covered by debt capacity in the RBL. Then we have additional hedging, which we would look to implement opportunistically if we experience a period of higher oil prices over the next six to nine months. Then the facility agreement has a capex add-back feature, which allows a company to add back the forecasted next two quarters of capex spend, subject to intended use of the capex and bank approvals. Then we can look at phasing of significant expenditure in OPEX and capex and working capital management. For example, accelerate liftings from Antara and STAG. The work program can be optimized to generate incremental borrowing base, For example, by utilizing the capex add-back mechanism mentioned earlier. Finally, we've started assessing the option to ring-fence STAG, which is an asset which has a negative contribution in the borrowing base due to the conservative assumptions in the banking model. The assessment of the feasibility of this option needs time and work, and it also depends on bank consents. The main conclusion from this slide is that JadeStone is looking at a temporary borrowing base dip in its RBL, which we believe can be improved going forward using various measures with progressively more certainty around outcomes in the future. In summary, the $50 million equity raise and up to $35 million working capital facility in combination with our RBL form a solid foundation to bridge JadeStone into a period of operating cash flow growth and significantly increasing RBL debt capacity. Back to Paul for an operations update.

Well done. Thanks, Bert-Jan. Okay, let's move on to slide 11. And turning to Montara, where after securing tank 2C, we have completed an early phase of tank restoration, completed an extensive four-yearly maintenance campaign, and now see operations restored to pre-shutdown levels. You can see on the top left that production is settling in a range around 7,000 barrels a day with a further 500 barrels available once we complete some minor wellhead maintenance on two Montara wells. This reinforces our guidance at Montara and more broadly, where group production has settled at around 17,000 BOEs a day, even while we have a well on Stag, which is under work over, a spool change out at the Cherming Gap field in Malaysia, and a few other minor well work activities. The tank reinstatement program shown on the bottom left signals a slow and thorough close visual inspection program tank by tank. With phase one now complete, we're focused on a water balance tank, then tank 1C, and systematically working our way to returning to a six or seven tank operation, which will restore full-size parcels of crude for offload. In the meantime, we're selling smaller volumes And we're using a standby shuttle tank as a host storage facility to ensure no disruption to production operations. The goal for the operations teams is clear. A constant focus on safe production operations along with high uptime and a ruthless control on costs. And we'll do all we can to support them in this. Slide 12 provides an update on the ACATARA project and a summary of the economic return of what is our first new development within Jadestone. The team has many years of experience of this type of activity from past Talisman Energy Days, but it represents an exciting milestone for this company. We're firmly on schedule at 35% complete, and on budget with costs largely constrained through a fixed price lump sum contracting strategy. With over 700 personnel on site, progress is good and we've just achieved over 1 million man hours of safe working. Long lead items such as compressors and generators are usually the high risk items that impact schedule, but I'm pleased to report that all have passed factory acceptance testing and are in dispatch to the region. The economic summary on the left emphasizes the significant early cash generation, which under the PSC regime allows for recovery of costs both past and current project costs on an accelerated basis. This drives high IRRs and is a big contributor to a very rapid deleveraging of the balance sheet, as Bert Yap has already shown. We're excited by subsurface upside in the Acatara reservoir, well beyond the current contracted volumes, and we're already working towards incremental sales contracts over the first five years. This is truly a good news project. Touching on key activities and catalysts in the coming months, Let's turn to slide 13. The Montara tank reinstatement following restart is high priority. But drilling in East Belomut this year and further drilling in Malaysia and at Stagg next year are catalysts which help offset declines and are important value adds to the business. We're also preparing to work over the four wells at Akutara early next year for first gas and with more to follow. We're also in an exclusive arrangement to assess a future redevelopment of the PNLP assets in Malaysia in which we currently hold an operating interest and are increasingly excited about the potential. The next step requires us to make a bid submission to the regulator around end June. We also hold a view that slow but steady progress on gas sales in Vietnam may move ahead to a potential for signing a gas sales agreement and an FTP submission next year. FID would come later after the field development plan is approved, but it would be nice to see Vietnam moving forward. And finally, we're looking to advance small tuck-in opportunities which can be absorbed into the RBL if they exhibit the right cash flow characteristics. As Bert Jupp said, CWLH and Sinful Hall met these key criteria and will be equally selective to ensure near-term opportunities can also be debt financed. Slide 14 now, which provides guidance for the year. It's worth emphasizing that unit OPEX is likely to reach a high watermark this year. This, of course, is due to only a partial year of production at Montara and some one-off costs around shuttle tankers in what has been a very volatile market. In other areas, logistics costs are up and drilling activity is likely to see inflationary pressure next year, though this year's program is holding the cost-based firm. The good news is that 2024 should see much of this OPEX pressure reversed, due to stable production operations, and we expect tanker usage to return to normal. This is in combination with the fall in committed capital program, which is likely to soften in our business next year as ACATARA wraps up. But just to conclude and to be clear, we retain guidance for the year as we laid out, and we believe we're in good shape. Now slide 15, with our balance sheet and liquidity underpinned by the placing and standby working capital facility. Montara operations restored within an increasingly diverse production portfolio, and Acatara moving ahead on plan. With all this, the jade stone equity story stands at an inflection point, with a clear line of sight to significant cash flow generation and a rapid deleveraging of the balance sheet. I want this point in time to be seen as a relaunch of the business, which sees us return to healthy cash generation and a strong balance sheet, which has been a hallmark of this company. Ladies and gentlemen, we've been through a difficult period. No company of our size comes out unscathed from an extensive period of key asset outage. We've sought every avenue for solutions, managing stakeholder speed bumps on the way. However, we now find ourselves with a tremendous opportunity baked in short-term growth from an expanding and diverse portfolio, an environment with opportunity to further deepen the business with high-quality assets, and a significant financial capacity largely backed by the highest quality international banks. that have stamped our business as meeting their very highest of standards. So we now draw a line committed to delivering our work program, including safe and efficient operations across the portfolio, ACOTARA on schedule, adding 50% more production in 2024 and restoring the balance sheet and shareholder returns. We'll communicate this to the market effectively and with the aim of seeing this delivery reflected in our share price. And with that, I'll hand back to the operator and we'll take your questions. Thank you.